Keith Edwin Soderquist and Christie Soderquist

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
______________________________________________________
In Re:
Bankruptcy Case
KEITH EDWIN SODERQUIST 	No. 04-41002
and CHRISTIE SODERQUIST
dba C & K Farms,
Debtors.
______________________________________________________
MEMORANDUM OF DECISION
______________________________________________________
Appearances:
Craig R. Jorgensen, Pocatello, Idaho, Attorney for Debtors.
Jeffrey G. Howe, Boise, Idaho, Office of the U.S. Attorney.
Debtors-in-possession Keith and Christie Soderquist (“Debtors”) filed for
relief under Chapter 11 of the Bankruptcy Code on May 10, 2004. Their attorney is Craig
Jorgensen (“Counsel”). Now, approximately seven months into this case, Counsel has
applied to the Court for approval of his employment as the attorney for Debtors, effective
retroactively to the date of commencement of the case. Mot. to Approve Employment of
Attorney Nunc Pro Tunc, Docket No. 60. The United States Trustee’s Office (“UST”)
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1 This Memorandum represents the Court’s findings of fact and conclusions of law. Fed.
R. Bankr. P. 7052, 9014.
2 All Rule references are to the Federal Rules of Bankruptcy Procedure; all statutory and
“Code” references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1330.
MEMORANDUM OF DECISION - 2
objects, not to approval of Counsel’s employment from the date of the filing of Counsel’s
application prospectively, but to retroactive approval.
After conducting a hearing concerning the matter on November 24, 2004,
and having considered the arguments and authorities submitted by the parties, for the
reasons explained below, the Court concludes Counsel’s request should, in light of the
facts of this case, be granted. 1
FACTS
Prior to filing their bankruptcy petition, Counsel provided routine, pre-
bankruptcy assistance and services to Debtors. These services included interviewing
Debtors, gathering relevant information, and preparing a bankruptcy petition, schedules, a
statement of financial affairs, and other necessary papers. Apparently, Counsel’s long-
time paralegal, who normally would have prepared the papers necessary for Debtors to
commence the bankruptcy case, had recently left his employment. Therefore, Counsel, as
a solo-practitioner, retained an “outside” contract paralegal to prepare the documents.
The contract-paralegal also prepared an application for Counsel’s employment and a Rule
2016(b) fee disclosure.2
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3 As the Court observed at the hearing, Counsel’s failure to file a timely Rule 2016(b) fee
disclosure is itself a serious matter, but one the Court need not address in connection with the
motion under advisement. Instead, the Court will consider the implications of Counsel’s error at
a later appropriate time.
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When Counsel’s clerk filed Debtors’ petition and schedules at the bankruptcy court on
May 10, contrary to his customary practice, his employee, for some unknown reason, did
not file Counsel’s application for employment or his fee disclosure.3 Instead, these
documents were placed in Counsel’s client file folder where they remained for some time.
Finally, on October 20, while preparing Debtors’ disclosure statement,
Counsel reviewed the Court’s electronic docket for Debtors’ case on the Internet. In
doing so, Counsel first realized that his employment had never been approved. It was at
that time he located the original application for employment and fee disclosure in his
client file. On October 21, Counsel filed a Disclosure of Compensation of Attorney for
Debtor, a Verified Statement of Attorney, an Application to Approve Employment of
Attorney, an Affidavit of Craig R. Jorgensen, and a Motion to Approve Employment of
Attorney Nunc Pro Tunc. Docket Nos. 56, 57, 58, 59, 60. On November 23, 2004, the
UST filed an objection to approving Counsel’s employment retroactively. Docket No.
75.
At the hearing, Counsel explained that his law practice was unusually busy
at and after the time he filed Debtors’ bankruptcy petition, and that this heavy work load,
coupled with the loss of his usual paralegal, surely contributed to his failure to apply
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MEMORANDUM OF DECISION - 4
promptly for approval of his employment. Beyond this, though, Counsel, who is a
seasoned Chapter 11 debtor’s attorney, was unable to offer any specific details about why
his routine practice of applying for approval of his employment at the time a bankruptcy
case is filed was not observed in this case, or why it took months to discover this error.
Discussion
A. Approval of Counsel’s Employment Prospectively.
In Idaho, the approval of employment for a Chapter 11 debtor’s attorney is,
as a matter of course, retroactively effective to the date of filing of the application.
L.B.R. 2014.1(c). The UST, the only party to object to Counsel’s application, does not
contest approval of Counsel’s employment prospectively, which the Court interprets to
mean from the date the application was filed, October 21. From the record, it appears that
Counsel is disinterested, holds no interest adverse to the bankruptcy estate, is qualified to
represent Debtors, and that Counsel’s services are, and will hereafter be, necessary to
assist Debtors with their attempts to reorganize. 11 U.S.C. § 327; Fed. R. Bankr. P. 2014.
Certainly, then, Counsel’s application to approve his employment, on a going-forward
basis, should be approved.
B. Approval of Counsel’s Employment Retroactively.
Usually, bankruptcy estate professionals may not be compensated for
services performed prior to proper authorization of their employment by the bankruptcy
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MEMORANDUM OF DECISION - 5
court. 11 U.S.C. § 330(a)(1) (allowing compensation only to “a professional person
employed under section 327 or 1103 . . . .”); Atkins v. Wain, Samuel & Co. (In re Atkins),
69 F.3d 970, 973 (9th Cir. 1995); In re Ferreira, 95 I.B.C.R. 282, 283 (Bankr. D. Idaho
1995). Where court approval has not been first obtained, in order to promote adherence
to the Code and Rules and to encourage timely, responsible action by professionals, the
Court would welcome a standard that simply and absolutely prohibited retroactive
validation of tardy applications. But such a harsh rule, although always easily-applied, is
not the law. Instead, bankruptcy courts in the Ninth Circuit are vested with “the equitable
power to approve retroactively a professional’s valuable but unauthorized services.”
Atkins, 69 F.3d at 973–74. Exercise of the court’s discretion in granting such approval is
limited to situations in which the professional satisfies the criteria for employment under
§ 327 and other “exceptional circumstances” exist justifying a deviation from the normal
rule. Id. at 973–74, 976. To demonstrate the requisite “exceptional circumstances,” the
professional must (1) satisfactorily explain the failure to receive prior judicial approval
for services performed, and (2) demonstrate that those services benefitted the bankruptcy
estate in a significant manner. Id. at 974.
In this instance, the Court finds and concludes that Counsel currently
satisfies the employment requirements of § 327 and Rule 2014. At the hearing, Counsel
explained that the papers he filed in October in connection with his application, Docket
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4 Having made this observation, the Court must reserve the right to review again
carefully the necessity and benefit of the services provided by Counsel at the time the Court is
asked to approve his fee applications, along with any objections that may be submitted in
response to such applications. Such is the Court’s independent duty. Law Offices of David A.
Boone v. Derham-Burk (In re Eliapo), 298 B.R. 392, 405 (B.A.P. 9th Cir. 2003); In re Dale’s
Crane, Inc., 99.1 I.B.C.R. 8, 8 (Bankr. D. Idaho 1999).
MEMORANDUM OF DECISION - 6
Nos. 56–60, accurately reflect the facts as of the time they were filed. That being so, after
reviewing Counsel’s submissions and the Court’s own file in this case, the Court further
finds and concludes that Counsel would have satisfied the requirements of § 327 and Rule
2014 at the time Debtors’ petition was filed if Counsel had filed the necessary papers to
obtain approval of his employment at that time. Because Counsel has satisfied this
element of Atkins, the Court turns its attention to whether exceptional circumstances exist.
The UST acknowledges that the services provided by Counsel to date were
valuable. The Court shares this conclusion after reviewing its file. It appears Counsel
has provided Debtors valuable assistance by, among other things, commencing their
Chapter 11 case, representing Debtors at the § 341(a) meeting, drafting and filing a
proposed disclosure statement and plan, responding to creditors’ concerns, and submitting
amended disclosure statements and plans to deal with those concerns. For purposes of
this analysis, then, the Court is comfortable in concluding that the services Counsel has
provided to Debtors so far have been valuable. 4
The remaining issue, then, is whether Counsel has provided a satisfactory
excuse for not obtaining prior judicial approval of his employment. The UST argues that
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MEMORANDUM OF DECISION - 7
Counsel’s mistake was, at best, negligence or inadvertence, and therefore does not
constitute a satisfactory explanation. In response, Counsel notes that because of his long
history of timely applying for approval of his employment as counsel for debtors-in-
possession in the many cases he has handled, the mistake made in this case should be
regarded as an aberration, and should not prevent the Court from approving his
employment retroactively.
The decision of the bankruptcy court in In re Gutterman, 239 B.R. 828
(Bankr. N.D. Cal. 1999), is instructive. The Chapter 7 trustee’s counsel had failed to seek
timely approval of his employment; when counsel did file an application, the UST
objected. Id. at 829–30. The court found that counsel provided valuable services to the
trustee, that counsel’s normal practice was to file an employment application immediately
upon being hired, and that his departure from the Code and Rules in this case represented
an isolated incident. Even though it agreed with the UST’s characterization of counsel’s
conduct as “mere oversight,” the court determined that counsel’s explanation was
satisfactory. In reaching this conclusion, the court noted specifically that the absence of
any prejudice to the estate was an important consideration. Id. at 831.
Here, the Court has first-hand experience with Counsel and concurs that, in
the past, he has been conscientious in filing applications for approval of employment in
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5 Obviously, Counsel can quench his thirst at this well but once. If he makes a similar
mistake in the future, Counsel’s past compliance with the Code and Rules would be of little help.
6 In particular, this does not appear to be a case where paying Counsel’s fees for services
provided prior to approval of his employment would have “the effect of depleting all of the
estate’s assets, leaving nothing for unsecured creditors.” Andrew v. Coopersmith (In re
Downtown Inv. Club III), 89 B.R. 59, 62 (B.A.P. 9th Cir. 1988). Instead, assuming Debtors’
proposed Amended Chapter 11 Plan of Reorganization, Docket No. 63, is confirmed,
administrative claimants and secured creditors will be paid in full, and a significant distribution
to unsecured claimants will be made as well.
7 Although not a prerequisite to a finding of exceptional circumstances, nine factors (the
so-called “Twinton factors”) have been identified to assist the Court with the necessary analysis.
Atkins, 69 F.3d at 976. These factors focus on whether: (1) the debtor, trustee, or committee
expressly contracted with the professional person to perform the services which were thereafter
MEMORANDUM OF DECISION - 8
Chapter 11 cases shortly after, if not with, the petition.5 In addition, there is no evidence
that any party has been prejudiced by Counsel’s tardy filing.6 To the Court, these are
important considerations, just as they were in Gutterman.
Another factor of considerable importance in this case is that, upon learning
of his error, Counsel promptly sought approval of his employment, filing the necessary
papers the very next day. To the Court, this reflects a sincere desire to comply with the
Code and Rules, not a cavalier approach to compliance.
The Court also accepts Counsel’s representations that his omission occurred
in the context of an unusually busy period in his solo law practice, and at a time
immediately following his loss of an experienced member of his administrative staff. In
the Court’s view, all these factors, considered together, provide a satisfactory explanation
for the error Counsel made.7
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rendered; (2) the party for whom the work was performed has approved the entry of a nunc pro
tunc order; (3) the applicant has provided notice of the application to creditors and parties in
interest and has provided an opportunity for filing objections; (4) any creditor or party in interest
has offered a reasonable objection to the entry of the nunc pro tunc order; (5) the professional
has satisfied all the criteria for employment pursuant to § 327 and Rule 2014 at or before the
time services were actually commenced and remained qualified during the period for which
services were provided; (6) the work was performed properly, efficiently, and to a high standard
of quality; (7) no actual or potential prejudice will inure to the estate or other parties in interest;
(8) the applicant’s failure to seek pre-employment approval is satisfactorily explained; and (9)
the applicant exhibits no pattern of inattention or negligence in soliciting judicial approval for
the employment of professionals. Id. at 974 (citing In re Twinton Props. P’ship, 27 B.R. 817,
819–20 (Bankr. M.D. Tenn. 1983)). In exercising its discretion to grant Counsel relief, the Court
has also considered these factors and concludes that Counsel has satisfied most of them.
MEMORANDUM OF DECISION - 9
To be fair to others whom the Court has not excused in the past, further
comment is appropriate. In those cases, some aspect of the professional’s showing was
lacking. For a recent example, the facts here are certainly distinguishable from those in
In re Ball, 04.3 I.B.C.R. 87 (Bankr. D. Idaho 2004). In Ball, the Court declined to
approve retroactively the employment of a realtor who assisted in the sale of property of a
Chapter 12 debtor. There, the debtor and realtor did not promptly seek retroactive
approval, doing so over one month after the realtor had commenced his marketing efforts,
found a buyer, and negotiated a sale of the property. Moreover, the realtor’s request came
only after the Court noticed a reference to the realtor in the sale notice concerning the
property, and urged the debtor’s attorney to follow up. Further, no persuasive evidence or
argument was offered to establish a satisfactory explanation for the failure to seek prior
judicial approval of the realtor’s employment. Instead, the debtor and realtor essentially
pled ignorance of the requirements of the Code and Rules. As can be seen, the facts here
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present a markedly different situation.
Conclusion
While perhaps a close call, the Court finds and concludes that Counsel
meets the requirements of § 327 and Rule 2014, and that Counsel has demonstrated that
his failure to seek prior Court approval of his employment was the result of exceptional
circumstances. In the exercise of its discretion, the Court will approve Counsel’s
employment retroactively as of May 10, 2004.
A separate order will be entered.
Dated: January 5, 2005
Honorable Jim D. Pappas
United States Bankruptcy Judge
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